UBS: Aussie house price falls to “double”

MB has repeatedly warned that the reported bounce in auction clearance rates is purely seasonal and always occurs at this time of year (as illustrated below).

We’ve also noted that auction volumes have collapsed, especially across Sydney and Melbourne, which underlines the weakness across these two markets.

Today, UBS has entered the fold, warning that February’s auction bounce has given “false hope” to those seeking a housing recovery, and forecasts that price falls will double to 14%, with negative spillover effects for the broader economy:

Auction send false signal; still a ~cycle low clearance, & volumes collapse ~50% Much has been made of the ‘bounce’ in auctions in Feb-19. However, it’s clearly a false sign of hope. The rise in auction clearance rates this year is 1) seasonal, & 2) based on a spike in under-reporting of failed auctions, with the ‘preliminary’ result massively revised down 5%-10%pts to the ‘final’. Indeed, while the national clearance rate rose to 48.6% in Feb-19, this remains very weak around prior cycle lows (after the late-2018 trend was a record low in the low 40’s). Furthermore, demand is weak as the number of auctions held in Feb dropped by ~30% y/y, & sales at auction collapsed by 50% y/y…

UBS tighter credit thesis still playing out; prices to drop 14%; RBA to cut rates The UBS credit tightening thesis is still playing out, with accelerating weakness in home prices, sales, approvals, loans, & credit growth. The peak-to-trough decline in home prices is still ‘only’ 7%. Looking ahead, while the Royal Commission didn’t change any laws, with APRA & ASIC reinforcing ‘sound lending practices’, we expect price falls to double to 14%, making a negative household wealth effect on consumption likely. We remain non-consensus expecting GDP to clearly slow to a below trend 2.3% y/y in 2019, seeing unemployment rise, & the RBA cut in Nov-19, with risk of earlier easing.